The Federal income tax has been around since it was made a permanent part of our lives when the 16th Amendment was passed in 1913. This was added to state income taxes, excise taxes, sales taxes, property taxes, poll taxes, and a host of tariffs which were in effect long before 1913. The first federal income taxes were flat taxes; i.e. 3 % on all incomes above $ 800.00. Back then it was deemed to be the fairest method of taxation.
Over the past century, taxation has become so complicated, so complex, an entire industry comprised of tax attorneys and accountants was required to sort it out. The flat tax was replaced with a progressive tax system which has been modified dozens of times in a seemingly endless struggle to make it fair for everyone. As a result of all of this tax legislation our current system isn’t fair to anyone.
Tax reform has now been passed by Congress for yet another attempt at simplifying the tax structure and striving for fairness, but, all that happened was that we replaced the current seven brackets; 10 %, 15 %, 25 %, 28 %, 33 %, 35 % and 39.6%, with seven new brackets; 10%, 12%, 22%,24%, 32%, 35% and 37 %. So, basically, it is still a system where the higher your income the higher your taxes. And that is just for individuals. It gets even more complex when you add capital gains and business taxes. There are several reductions which affect large corporations and small businesses, supposedly to stimulate the economy by encouraging more hiring and investment in plant and equipment to increase manufacturing capacity. While it may be that some businesses were holding off on making these moves until after the tax reform shakeout, but the fact is that hiring and investing is driven by supply and demand and not substantially by tax breaks. Sorry, that is just an economic fact.
Interestingly, 44.4 % of all taxpaying units in the U.S. pay no income tax at all (2018). This leaves the tax burden on the other half of society to support federal government provided services for everyone. Liberals tend to support the mantra that says we need a tax system that forces “the rich” to pay their “fair share”. The definition of “the rich” varies but the percentages most often heard range from the top 5 % to the top 1 % of all income earners. “Millionaires and billionaires” was the phrase bandied about by liberals during the elections. If you actually do the math, you will discover that 20% of taxpayers pay 87 % of all federal income taxes. The top 1 % paid more individual income taxes (37.3 %) than the bottom 90 % of tax payers combined (30.5%). Seems to me that “the rich” are already paying more than their fair share. Conservatives tend to believe that it would be fair if “the rich” were allowed to keep more of what they earn and spread the burden to more people equally.
In my opinion, this debate between the “haves” and the “have nots” will never be reconciled but returning to a flat tax, which uses a fixed percentage applied to all incomes, would be the fairest approach. The percentage should be calculated based on a rational federal budget and with an eye toward paying off the federal deficit within a reasonable period of time. This percentage should be applied to all income with no caps and no deductions. The percentage should change annually based on the need for balancing the budget and reducing the deficit. In a society that appears to be moving more and more toward a socialist structure whereby government is being charged with providing more and more services it cannot afford for the good of, supposedly, all the people, those people are going to have to pay a heavy tax burden or the entire system is doomed to collapse from the debt burden. Look at Switzerland. This country not only provides a national healthcare system and guaranteed retirement income, but a host of other services that support their citizens. In June the Swiss voted on whether to give every Swiss adult a "basic " that would "ensure a dignified existence and participation in the public life of the whole population". The amount being proposed was equal to $ 2,800.00 per month subsidy…..for life! Fortunately, the Swiss people realized the financial chaos this would have wreaked on their population and voted the measure down. Unfortunately, with the federal, state (cantonal) and municipal taxes on all income, the Swiss still pay high property taxes, sales taxes, a value-added tax (VAT), border tax, capital tax, and on and on. The average Swiss citizen pays about 60 % of their income in taxes.
And the USA is headed in the same direction if we keep adding services and continue to deficit spend. Most of the Democrats running for their party’s nomination for President support the Green New Deal. The American Action Forum estimates that, between 2020 and 2029, the energy and environmental components of the Green New Deal would cost $8.3 trillion to $12.3 trillion, or $52,000 to $72,000 per household. In my last post you saw that I acknowledge we need to find a solution to Global Warming. This is not it. Many Democratic candidates also support universal healthcare accomplished by expanding the current Medicare system to cover every person currently residing in America. According to a Washington Post article researching this subject, from 2019 to 2028, the federal government would spend an average of $ 2.8 trillion more per year on health care if Bernie Sanders’s plan were fully in place.
According to a study, published by the Mercatus Center, a libertarian-leaning think tank, notes that this price tag could not be covered by doubling what the government currently takes in through individual and corporate taxes combined. In a subsequent post you will discover that I am personally for healthcare for every American, but this is not the answer. Add to these two entitlement programs a free college education for all and other programs being proposed and the crushing death blow of taxation would be complete. We better get ready.
States should have the right to determine the methods of tax collection that support local government as the residents of that state dictate. This currently takes the form of state income tax, property tax and sales taxes. Some states have one or more of these methods of raising income for state funded services. If you don’t like paying state income tax, move to a state that doesn’t have that tax. I know this is easier said than done, but is probably more practical than lobbying state representatives to eliminate a state income tax that is already in place. Politicians don’t like to lower taxes and “rob” constituents of the services they lobbied for them to receive, even if it means they pile up debt. Property taxes and sales taxes are progressive by nature. The more you spend on housing, the more you spend on goods and services, the more tax you pay. But these progressive taxes are fair because they don’t tax income but consumption, which an individual can control to a certain extent.
I welcome your comments, as usual, and your ideas on better methods of, read that fairer, taxation.